Monday, November 18, 2013

First Resources Ltd : Buffer from forward sales (CIMB)

▊ 3Q core net profit fell only 4% yoy as higher production and a lower tax rate mitigated weaker selling prices and rising costs. This was a good achievement vis-à-vis the other upstream players, thanks to the realisation of forward sales. 9M13 core EPS was broadly in line at 81% of consensus and our FY13 forecasts, as we are expecting weaker earnings in 4Q due to lower production. Our Outperform rating is intact, though we raise our target price, still based on 12.3x P/E or 1 s.d. above its 4-year mean, after rolling over to end-2014. Re-rating catalysts are expected from higher production and downstream earnings.

Plantations did well
3Q core net profit (excluding forex losses of US$8.1m) fell 4% yoy due to lower profit contributions from its refinery and processing segment (-81% yoy to US$3.1m). Plantation earnings were up 12% yoy and 37% qoq as higher CPO sales volumes trumped lower ASPs achieved. ASPs achieved of US$844/tonne (-3% yoy) in 3Q remained higher than average CPO prices (FOB) of US$768/tonne for Belawan due to the realisation of forward sales locked in earlier at favourable prices. The better prices it achieved relative to its industry peers were one reason why its earnings were less affected by the falling selling prices of palm products and rising costs. Forex losses in 3Q were due to translation losses of US$ inter-company liabilities of its subsidiaries.

Hitting key targets
FFB production from its nucleus estates grew 8% yoy in 3Q13 and 4% in 9M13, in line with the group’s growth target of 0-5% and our FY13 projections. New oil-palm plantings of 10,839ha in 9M13 were also in line with the group’s target of 10,000-12,000ha for the full year. Costs of production on a per tonne basis were lower in 3Q due to higher production and lower fertiliser applications during the quarter.

Our top pick in the sector
The stock remains one of our top picks in the plantation sector for its attractive valuations against peers, cost-efficient estates and attractive estate profile.

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